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RBA Freeze Rates, AUD NZD Exchange Rate Declines

Published: 5 Jul at 9 AM Tags: Euro Exchange Rate, Dollar Exchange Rate, Australian Dollar Exchange Rate, New Zealand Dollar Exchange Rate, Currency Exchange, Forex, Swiss Franc Exchange Rate, Euro Crisis, Yen Exchange Rate, Exchange Rates, Inflation,

AUD/NZD Weakens after RBA Rate Freeze Decision

The Australian Dollar softened against the New Zealand Dollar this morning after the early hours rate freeze from the Reserve Bank of Australia (RBA).

The decision by the RBA to freeze interest rates at 1.75% was widely forecast, so the markets were unsurprised by the result of the latest policy meeting. The wording of the accompanying policy statement generated some AUD/NZD volatility, however.

While the statement failed to explicitly suggest an easing bias, it did note that;

‘Over the period ahead, further information should allow the Board to refine its assessment of the outlook for growth and inflation and to make any adjustment to the stance of policy that may be appropriate.’

Traders have bilaterally interpreted the phrase ‘further information’ as meaning the next consumer price index report, which will be released by the Australian Bureau of Statistics on the 27th of July.

The RBA has a history of waiting for inflation data before making cuts. As a result, the lack of overt suggestions of incoming policy easing in the latest statement has failed to calm the markets. Analysts still anticipate at least one further rate cut, with Paul Dales from Capital Economics anticipating two cuts;

‘By leaving interest rates at 1.75% and not providing a very strong hint that they will be cut in August, the Reserve Bank of Australia today implied that the recent financial market volatility and political uncertainty has not altered the economic outlook.’

‘Even so, we think that the weak outlook for inflation will prompt the RBA to cut rates to 1.5% in August and eventually to 1.0% next year.’

On a data front, the latest domestic releases were poor. The AiG Performance of Service Index for June dipped from 51.5 to 51.3, while consumer confidence dropped -1 point. The latest trade balance figures showed a shock widening of the deficit, which grew from a downwardly revised -1785m to -2218m, rather than shrinking to -1700m. Retail sales growth failed to accelerate to 0.3% as predicted.

AUD/NZD is currently trading around 1.0413, -0.8% down from this week’s high so far of 1.0416.

NZD/AUD Advances on Strong Domestic Data

Global risk-aversion is currently weighing on both the Australian Dollar and New Zealand Dollar today. Stock markets are mostly in the red, with the Japanese Nikkei closed down -0.7% and the Hong Kong Hang Seng down -1.2%. European stocks are also posting losses. Gold is rising while bond yields are down, with safe-haven currencies such as the US Dollar (USD), Japanese Yen (JPY) and Swiss Franc (CHF) performing bullishly overall.

The New Zealand Dollar has been able to strengthen against the Australian Dollar, however, thanks to strong domestic data. The ANZ Commodity Price index for June showed 3.7% growth, while May’s figure was revised up to 1.1%. According to QV, house prices posted their fast three-month rise since 2004, with the increase of 5.6% equivalent to average prices growing by $30,000.

According to Andrea Rush, national spokeswoman for QV, ‘The Reserve Bank is considering introducing further restrictions on property investors and it appears this may have led to a surge in investor purchases in various housing market around the country over the past month.’

The NZD/AUD exchange rate has advanced to 0.9589.

Australian Dollar to New Zealand Dollar Exchange Rate: Dairy Prices to Move AUD/NZD

The final economic event for either Australia or New Zealand today will be the GlobalDairyTrade Auction. If the price of dairy falls, NZD will likely lose its supremacy against AUD. Strengthening milk prices will likely push the New Zealand Dollar into a bullish rise, regardless of market sentiment.
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